LCD prices seen falling on wave of new capacity

While strong demand continues to favor LCD suppliers by keeping prices for their displays high, an imminent increase in fab capacity could soon swing the pendulum in the direction of OEMs, according to a number of participants at the Society for Information Display (SID) conference, held here last week.

Korea's LG.Philips LCD Co. Ltd. will announce today that its Generation 5 fab will begin volume production this week, about a month ahead of schedule. With other large LCD manufacturers, including Samsung Electronics Co. Ltd. and several Taiwan-based vendors, also readying Generation 5 fabs for operation in coming months, industry observers believe the increased capacity by midyear will stabilize LCD prices, which began rising in the fourth quarter of 2001.

Prices have gone up by 25% for 15in. desktop panels and 35% for 14- and 15in. notebook panels since last October, according to Sweta Dash, an analyst at Stanford Resources Inc., the display research arm of iSuppli Corp., El Segundo, Calif.

Dash said that LCD prices could edge up another 1% to 2% for desktop panels and 4% for notebook displays, but will level off in the second half of this year as shortages ease and buyers become less likely to hoard.

"There's still a lot of tight supply, but buyers are no longer double-booking orders," Dash said.

Ross Young, an analyst at DisplaySearch Inc., Austin, Texas, believes not only that LCD prices will level off, but could start declining by the second quarter of 2003.

"We think July is the last month of price increases," Young said.

For example, a 15in. XGA desktop panel now priced at $245 to $260 will peak at $255 to $270 in July, while a 17in. SXGA desktop display now at $380 to $395 will top off at $400, he said.

Young added that despite LCD suppliers' best efforts, the historical industry pattern of rapid, steep swings in supply and demand will likely continue. "The capacity is coming on in large increments. There's no way all of it can be utilized," he said.

Trying to diversify

Suppliers don't deny that overcapacity could occur again, but they are trying to at least mitigate it by moving away from a strong focus on common 15in. desktop and notebook panels to larger displays for next-generation PCs and emerging markets like LCD TV. Others, particularly Japanese suppliers, are trying to carve out niches or are emphasizing technical capabilities in the LCD market, whose revenue will grow from less than $30 billion in 2002 to $51 billion by 2006, according to iSuppli.

LG.Philips is counting on its $1.6 billion Generation 5 fab in Kumi, Korea, to help drive a shift to larger displays. The plant uses a glass size of 1 ?? 1 meter, compared with 680 ?? 880mm in the company's Generation 4 fabs.

"We'll initially be able to produce 30,000 sheets [of the larger glass] a month and later double it to 60,000 sheets a month," said LG.Philips executive vice president Bruce Berkoff.

The fab will focus on 17in. XGA, 18in. SXGA, and 23in. UXGA panels, Berkoff said. "Five years from now, 18in. panels could be the entry-level LCD."

LG.Philips' main competitor, Samsung, also plans to focus at its Generation 5 fab on 17in. and larger LCDs when it begins operating either in September or October of this year, according to Sang-Soo Kim, vice president of the R&D team at the company's AM-LCD division.

But 15in. screens aren't being ignored. "We're refining our production process for 15in. notebook LCDs to use four mask steps instead of five," Kim said.

The Samsung executive added he isn't concerned about the possibility of an oversupply of desktop or notebook LCDs. "If an oversupply develops, we'll go into LCD TV screens," he said.

Samsung at the SID conference demonstrated a 40in. TFT-LCD TV panel, adding to its growing line of LCD TV displays.

Taiwanese competition

Both Samsung and LG.Philips are running hard to retain their market-leading positions in LCDs as they fend off Taiwan-based suppliers like AU Optronics, Chi Mei, and Quanta, all of which expect to have Generation 5 fabs on line by early next year.

AU Optronics Corp., Hsinchu, Taiwan, has begun installing six production lines at its offshore assembly plant in Suzhou, China. It is expected to begin operating in the third quarter of this year to address increasing LCD demand in China. The fab will initially produce 300,000 modules monthly, but could expand to more than 500,000 modules a month by year's end, according to the company.

Meanwhile, Japanese LCD suppliers, which have lost market share to Korea- and Taiwan-based suppliers, continue to revise their strategies.

NEC Corp., in the midst of massive restructuring, recently announced it will spin off in October its TFT-LCD operations as a separate company focused on LCDs for medical, industrial, point-of-sale terminal, and other value-added applications.

The new entity, which will likely be headquartered in Japan, has yet to be named, said Omid Milani, director of the Display Business Unit at NEC's U.S. subsidiary, NEC Electronics Inc., Santa Clara, Calif.

In addition, the new company will form a joint venture with Shanghai Video & Audio Electronics Co. Ltd. that will focus, in a Generation 5 fab to be built by 2004, on TFT-LCDs for desktop PCs and notebooks, Milani said.

Japan's Sharp Corp. recently said it will ramp up manufacturing of LCDs for mobile phones and other handheld electronic products using its continuous-grain silicon technology. To do this, the company is building a plant in Taki, Mie Prefecture, with a capacity of 4 million units a month. It is slated to begin operating in October 2003.